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MITCenter for
Transportation & Logistics
CTL.SC1x -Supply Chain & Logistics Fundamentals
Introduction to Logistics & SupplyChain Management
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Five Questions
1. What is a supply chain?
2. What are logisticsand supply chain management?
3.
How should you view SCM?4. What are the challenges
5. Why should you care?
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What is a Supply Chain?
4
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What is a Supply Chain?
Two or more parties linked by a flow of resources typically material, information, and money that ultimately
fulfill a customer request.
Information (order)
Money (payment)
Information (status)
5
Material (delivery)
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What is a supply chain?
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What is a Supply Chain?
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Bicycle
Wholesaler
Retailer
Customer
Wholesaler
Retailer
Retailer
Customer
Customer
Customer
Retailer
HardwareSupplier
FrameSupplier
TireSupplier
CastingPlant
GearSupplier
PaintSupplier
PedalSupplier
Supplier
RubberMfg
PigmentSupplier
ChemicalMfg
Supplier
Smelter
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What is a Supply Chain?
The primary purpose of a SC is to satisfy customer needs.! Only one source of revenue the customer
!
Payments between parties are just fund exchanges
! Division of intra-SC payments are a function of power, market
conditions, etc.
Supply Chains try to maximize the total value generated! = [What customer pays] [Total effort expended to fulfill]
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Logistics versus Supply Chain Mgmt
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What is Supply Chain Management?
Supply Chain Management deals with the management of materials,information, and financial flows in a network consisting of suppliers,manufacturers, distributors, and customers.
Stanford Supply Chain Forum
Call it distribution or logistics or supply chain management. Bywhatever name it is the sinuous, gritty, and cumbersome process bywhich companies move material, parts, and products to customers.
Fortune (1994)
Logistics involves . . . managing the flow of items, information, cashand ideas through the coordination of supply chain processes andthrough the strategic addition of place, period and pattern values.
MIT Center for Transportation & Logistics
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Logistics vs. SCM
According to the Council of Supply Chain Management Professionals . . .
! Logistics management is that part of supply chain management thatplans, implements, and controls the efficient, effective forward and reverseflow and storage of goods, services and related information between the
point of origin and the point of consumption in order to meet customers'requirements.
! Supply chain management encompasses the planning andmanagement of all activities involved in sourcing and procurement,
conversion, and all logistics management activities. Importantly, it also
includes coordination and collaboration with channel partners, which canbe suppliers, intermediaries, third party service providers, and customers.
In essence, supply chain management integrates supply and demandmanagement within and across companies.
11
Source: Used by permission, Council of Supply Chain Management Professionals, http://cscmp.org/.
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Supply Chain ManagementPerspectives
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Supply Chain Perspectives
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Image Source: Arntzen, B. MIT Center for Transportation & Logistics, Hi-Viz Research Project (2013)
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Supply Chain Perspectives
Suppliers
Manufacturers
Distributors
Customers
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Process View of Supply Chains
Four Primary Cycles!
Customer Order Cycle
!
Replenishment cycle
! Manufacturing Cycle
!
Procurement Cycle
Cycles Occur Between Stages!
Interactions differ at each stage
Not every SC will have all 4 Cycles
Procurement Cycle
Manufacturing Cycle
Replenishment Cycle
Customer Order Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
Adapted from Chopra & Meindl Supply Chain Management
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Macro Process (Software) Perspective
Supplier RelationshipManagement!
Sourcing!
Negotiation!
Buying
! Design and Supply
Collaboration
Customer RelationshipManagement!
Marketing!
Selling!
Call Centers
! Order Management
Internal Supply ChainManagement!
Strategic Planning!
Demand Planning!
Supply Planning
! Fulfillment
SRMsource
ISCMmake, move, store
CRMsell
Different macro processes should be aligned!
Fall under different groups (Marketing-CRM, Manufacturing-ISCM, Purchasing-SRM)
!
Forecasts, schedules, design, etc. should be coordinated
Supplier
CustomerFirm
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Traditional Functional Perspective
Purchasing / Procurement!
What to buy from who!
Corporate vs Group
Inventory Control!
How much to stock where!
Trigger points! Replenishment plan
Warehousing! Storage, Mixing, Break bulk!
Pick Pack and Ship!
What to stock where in WH Materials Handling!
How to move product! Packaging, containerization!
Storage layout
Order Processing!
Receiving, Entry & Status!
Order Management
Transportation!
Inbound versus Outbound!
Domestic versus International! Modal control (Rail, TL, LTL,
Parcel, Air, etc.)
Customer Service! Geographic!
Product Line Specific
Planning Group!
Facility Location!
Network Design! Demand Planning
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Systems Perspectiveof Supply Chains
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Take an Engineering Systems Perspective!
What is a variable and what is a constraint?!
Continuous expansion of decision variables! Increases potential for improvement but increases both
complexity and coordination requirements
Purch
asing
Wareh
ousin
g
Inv
en
toryM
gm
t
MaterialH
an
dlin
g
Ord
erPro
cessing
Tran
sporta
tion
Custom
er
Sv
c
Objective: Deliver at lowest transport costVariable:
"Select carrier to tender each load toConstraints:
"Ship everything each day"Must deliver within specified windows
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Supply Chain as a System
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Take an Engineering Systems Perspective!
What is a variable and what is a constraint?!
Continuous expansion of decision variables! Increases potential for improvement but increases both
complexity and coordination requirements
Purch
asing
Wareh
ousin
g
Inv
en
toryM
gm
t
MaterialH
an
dlin
g
Ord
erPro
cessing
Tran
sporta
tion
Custom
er
Sv
c
Objective: Deliver at lowest transport costVariables:"Select carrier to tender each load to"
Select time windows to deliverConstraints:
"Ship everything each day
Objective: Deliver at lowest total costVariables:
"Select carrier to tender each load to"Select time windows to deliver"
Select when to ship what from whereConstraints:
"
Deliver within negotiated time frame
Supply Chain as a System
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Take an Engineering Systems Perspective!
What is a variable and what is a constraint?!
Continuous expansion of decision variables! Increases potential for improvement but increases both
complexity and coordination requirements
Purch
asing
Wareh
ousin
g
Inv
en
toryM
gm
t
MaterialH
an
dlin
g
Ord
erPro
cessing
Tran
sporta
tion
Custom
er
Sv
c
Pro
ductD
esign
Man
ufa
cturin
g Objective:"Design, build, and deliver at lowest total cost
Variables:"Select carrier to tender each load to"Select time windows to deliver"Select when to ship what from where"Select where to stock which form of product
Constraints:"Deliver within negotiated time frame
Supply Chain as a System
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Take an Engineering Systems Perspective!
What is a variable and what is a constraint?!
Continuous expansion of decision variables! Increases potential for improvement but increases both
complexity and coordination requirements
Purch
asing
Wareh
ousin
g
Inv
en
toryM
gm
t
MaterialH
an
dlin
g
Ord
erPro
cessing
Tran
sporta
tion
Custom
er
Sv
c
Pro
ductD
esign
Man
ufa
cturin
g
Objective:"
Maximize on-shelf availabilityVariables:
"Select carrier to tender each load to"Select time windows to deliver"
Select when to ship what from where"
Select where to stock which form ofproduct"
Select contract relationships"Select who should control replenishment"
Which channel member should performwhich function
Constraints:"Total delivered cost to shelf
Retailer
Supplier
Supply Chain as a System
Why is this so hard to do?
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
What are the major challenges?(Why is it so hard?)
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Why is it so difficult? 1/2
Metrics How do you measure a system?!
Trade-off of Breadth vs. Validity of metrics
! Outcome Based Logistics - Perfect order, Perfect Shelf
Politics and Power of Players - Who wins?! Mom & Pop Shop versus Mega-Stores
!
Mega Retailers vs. Mega CPG Manufacturers
Visibility Who can see what and how quickly?! Data are stored separately
!
All parties do not have equal access to data
!
Massive data !Shared & accessible information
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Why is it so difficult? 2/2 Uncertainty - Who knows what is going to happen?
! Variable demand of product (shorter lifecycles)
! Variable manufacturing yield
!
Unreliable sourcing of raw materials
!
Inconsistent transit lead times
Increased complexity Why is it getting harder?!
Exploding number of Stock Keeping Units (SKUs)
!
Higher and diverging customer demands
! New & merging channels (Omni-Channel)
Global operations Why dont we ever close?!
Most firms source & sell across globe
!
Multiple regions, time zones, languages, & cultures
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Why do we care?
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Why do we care?
Supply Chains . . .
! Span the globe and cannot be managed as an isolated function,
!
Have become critical to any organizations operations, and
!
Connect functions, divisions, and business units within a firmas well as across firms.
Evolved into being both a Bridge and a Shock Absorber
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By Wsvan; cropped by Beyond My Ken (talk) 01:29, 14 October 2013 (UTC) (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (
http://commons.wikimedia.org/wiki/File:Leonard_P._Zakim_Bunker_Hill_Bridge_-_Boston,_MA.jpg"Mini Shocks" by Avsar Aras - Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/
File:Mini_Shocks.JPG#mediaviewer/File:Mini_Shocks.JPG
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Example: Variability of #2 Diesel Pricing
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2
2.2
2.4
2.6
2.8
3
3.2
3.4
3.6
3.8
4
4.2
4.4
4.6
4.8
Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 May-14 Nov-14
OnHighwayPriceof#2Diesel($/gallon)
Data Source: U.S. Energy Information Administration, http://www.eia.gov/petroleum/gasdiesel/diesel_proc-methods.cfm
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Logistics Costs per GDP
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2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1980 1985 1990 1995 2000 2005 2010 2015
PercentageofUS
GDP
Year
US Inventory Holding Cost US Transportation Cost Total US Logistics Cost
!"#$
&'()*+,
-./ 0123)*4,
+$#.2 0123)*4,
!"#! %&'! '(" ''#
!"#( )&%( ''* '*)
!""+ (&"# '#% %(!
!""( *&,, %+' ))!'+++ !+&'" %#( (")
'++( !%&! )!+ *%"
'+!+ !)&", )'" *,"
'+!% !, )," #,'
Data Sources: Council of Supply Chain Management (2014) 25th Annual State of Logistics Report
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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains
Still, why do we care?
Key Skills Technically Narrow Coordination
Influence Local & Controllable Across entire Supply Chain
Leadership Hierarchical, Direct,Hard
Influential, Indirect, Soft
Risk Management Robust or Reactionary Planned Response & Flexibility
Measurement Single Focus Multi-faceted
Technology
Approach
Isolated Optimization Visibility & Coordination
TechnologyPlatform
Self-Hosted, On-site Cloud or SaaS
Scope / Reach Regional / National Global / Multi-National
Functional Logistics Supply Chain
Supply Chain Management is a growing and evolving discipline.
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MITCenter for
Transportation & Logistics
CTL.SC1x -Supply Chain & Logistics Fundamentals
Questions, Comments, Suggestions?
Use the Discussion!
"Boxer (2)" by Dezidor - Own work. Licensed under Creative Commons Attribution 3.0 viaWikimediaCommons - http://commons.wikimedia.org/wiki/